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India has potential to see double-digit growth, says OECD

business Updated: Jun 14, 2011 15:34 IST
New Delhi

India has the potential to clock double-digit growth in medium term, provided right policies are in place and demographic developments push savings rate higher, according to Paris-based think tank OECD.

"Inclusive growth of 10 % per year is feasible given that demographic developments are set to push up saving, but will only be achieved if the administrative and regulatory barriers facing companies are reduced," OECD's Economic Survey of India released on Tuesday said.

The Indian economy is projected to expand at over 8 % this fiscal.

Speaking on the occasion, Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said the country is likely to see a growth of about 8.5 % in 2011-12 and has the potential to grow by 9 % annually.

Organisation for Economic Cooperation and Development (OECD) noted that sustainability of growth would depend on increased capital inflows and higher domestic savings.

Calling for further reductions in trade and foreign direct investment barriers, the report said that growth is set to remain strong in the near term on the back of private consumption and investment.

"However, sustaining high growth hinges on sound monetary and fiscal policies," it added.

OECD, a 34-member grouping of mostly industrialised nations, also cautioned against rising inflation and volatile capital inflows.

Regarding price rise, OECD has pitched for "further incremental tightening" since the economy is back on a high-growth trajectory.

Headline inflation rose to 9.06 % in May, a development that is likely to see the Reserve Bank of India further hiking rates.

"Longer term capital inflows can be increased by eliminating remaining controls over direct investment and allowing foreigners to purchase government bonds," OECD said.

Noting that India has been a "stand out performer" in the global economy, OECD Secretary General Angel Gurria said the nation has benefited from reforms.

On India's financial sector, the report said that a small number of "state-owned banks will continue to need capital injections, which could be best done via sales of shares".